Monday's price action was night and day different from last Friday's. Rather than close near the high end of the day's range, as the index ETFs did on Friday, stocks were liquidated into the close.
The SPDR Dow Jones Industrial Average ETF (DIA) , which went 35 trading days without closing under the 10-day exponential moving average (EMA), cracked slightly beneath that reference point yesterday. And the iShares Russell 2000 ETF (IWM) , which I was most bullish on coming into Monday, melted like a snowman in June, closing back beneath its 200-day simple moving average (SMA) and the 10-day and 20-day EMAs.
While it's too soon to say that stocks have rolled back over and are in a downtrend, there's no question that Monday's price action put the bulls back on their heels. And with a sizable percentage of stocks trading above their 40-day moving averages, even folks who hope for a Santa Claus rally are having an easier time envisioning a scenario where stocks dip instead of rip.
Away from equities, we saw the dollar come back to life yesterday, with the Invesco DB US Dollar Index Bullish Fund (UUP) bouncing off its 200-day SMA and gaining more than 0.75% on the day. I talked about the potential for the UUP to test its 200-day SMA in early November, and while the test appears to have been successful (at this point), a reversal of Monday's strength would leave the last defense sitting at $28. Maintaining a bullish posture on the dollar will be nearly impossible for me under $28.
I received a question yesterday evening regarding oil and gas and whether I was bullish on the industry. Given Monday's bearish price action in the commodities and equities, I figured I'd offer my two-timeframe view.
I don't like any aspect of the energy complex on a short-term trading basis. I won't be surprised to see crude oil futures hold $75, but I believe a new catalyst is required to sustain a break above $82.50. On the equity side of the equation, the SPDR Select Sector Energy ETF (XLE) looks more likely to test the low $80s than clear the low $90s, at least in the near term.
Longer term, I don't believe hydrocarbons are going anywhere. While the XLE looks vulnerable to a test of its 100-day or 200-day SMA over the near term, I suspect energy bulls will be celebrating new all-time highs on the XLE by this time next year.